First Time Home Buyer Guide

Are you a 1st time home buyer?

Buying a home for the first time can be an exhilarating and nerve-wracking experience. For most people, it’s one of the largest purchases you’ll ever make! Since you’ve never been through the process before, you may not understand everything that needs to happen before you can move in. We’ve consulted a licensed Realtor and a loan officer to create a first time home buyer’s guide that will help you know what to do before, during and after buying a home.

Before buying a house

While many people think that house hunting is the most exciting part of the process, you shouldn’t start there. Without getting some things in order first (like money and credit scores), you may end up falling in love with a home you can’t afford. Here are some tips for success:

Stabilize your finances

The best way to begin the home buying journey is to start tracking your expenses and saving as much money as possible for a down payment. Make a budget and consider what you can spend on these other expenses:

Monthly mortgage payment (including taxes and insurance)

Closing costs

Moving costs

Inspection

Possible renovation and HOA fees

Having an idea of what your income will allow will help you look for houses in the right price range.

Check your credit score

A credit score is a number (ranging from 300-850) that represents how trustworthy and responsible a person is with repaying loans on time. Typically, you need a score of 620 and three good lines of credit history to qualify for a conventional mortgage (along with the other necessary requirements). However, some lenders have stricter conditions and won’t loan money to anyone with a score under 640. You can get a free annual credit report from the three major credit bureaus (Equifax®, Experian® and TransUnion®) to see where you are. If you notice a low credit score, work to improve it by limiting credit card use and paying debt off as quickly as possible. Applying for other loans or making big purchases (like buying a car) during this time may hurt your credit significantly, so it’s recommended that you don’t do this until the deal is closed.

If you have trouble establishing credit, consider asking someone you trust to be a cosigner (someone who also puts their name on the loan promising to pay off any debt you can’t). Having a cosigner essentially makes your loan less of a risk. Talk with your lender about your specific situation.

Hire a reliable real estate agent

The best way to find a reliable real estate agent is to ask family and friends for recommendations and research some local agencies. After finding a few candidates, host short interviews and ask questions such as, “How long have you been in the business?” and “How many clients are you currently working with?” Selecting an agent who understands your needs and wants is crucial. Don’t hire someone who won’t have enough time to help you find the right starter home.

Get mortgage preapproval

Many real estate agents won’t show houses to clients who aren’t preapproved, so make sure you do this step. Shop around for the best loan and interest rates at local banks or ask your real estate agent for a good loan officer referral. According to Denton Branson, a Realtor with JE Jones Real Estate (a member of the National Association of Realtors®), “Local lenders have real estate agent relationships and communicate with them on a regular basis. With the amount of information banks require, it makes for a smoother experience for the agent to work with someone they know and trust.”

Learn about 1st time home buyer programs

There are a lot of nonprofit organizations and state and local government agencies available to help first time home buyers. Some programs offer buyers smaller down payment options, while others offer first time home buyer grants (which don’t have to be repaid). The U.S. Department of Housing and Urban Development lists HUD programs by state and gives information about Federal Housing Administration (FHA) loans. You might also consider checking here for other government programs to help purchasing a new home.

Create a wish list

Before you start looking at houses, it’s a good idea to create a wish list of everything you want and need, and then prioritize that list. Be sure to consider location, school districts, property tax rates, insurance rates and crime statistics – information your agent should be able to provide.

During the house hunting process

After the financial side is taken care of and you’ve found the best agent to work with, you’re ready to start house hunting. But even though this is the fun part, there are also a few things to keep in mind while shopping around.

Tour multiple homes

Even if you love the first home you look at, you should still visit multiple listings. Take notes and make a pro/con list. Does it meet your greatest needs? Don’t buy a home just because you’re emotionally attached to it and don’t settle for any home just because you’re in a rush to buy. If the house won’t work in five years, it may not be worth the investment.

Narrow your choices

Pick your favorite properties and then visit the area during the day, at night and on the weekends. Ask yourself these questions to determine which home is right for you:

What’s the traffic like?

Is the commute to work/school timely?

What are the neighbors like?

How’s the noise level?

Can you see yourself living there for many years?

Consider the resale value

More than likely, you won’t live in the same house forever. Be sure to consider the resale value of your favorite homes so that you’ll have an easier time selling them in a few years. Resale value can be based on factors like location (is it near quality schools and businesses?), age and condition (is it well maintained?) and crime rates (is the area safe?). Even things like paint colors and flooring can affect how well a house sells, so keep that in mind if you’re planning on renovating.

Make an offer

After finding the best home for you, it’s time to make an offer. You don’t want to bid too low, otherwise you may offend the seller and lose the deal, but you also don’t want to pay more than necessary. Your agent can complete a Comparative Market Analysis (CMA) to compare other homes in the area and help you determine the best offer to make. Be prepared for a few counter offers between you and the seller, but only accept what you think is fair.

After the offer is accepted

At this point in the process you’re almost an official homeowner. But, there are a few more steps to complete before the previous owners will hand over the keys. Once your offer is accepted, schedule an appraisal and inspection. Don’t finalize the purchase if:

Remember that there are no perfect homes. Every inspection will reveal flaws, but they’re usually minor ones. While it’s your choice to ask that every fault be repaired, understand that the seller probably won’t fix them all. If you’re not prepared to walk away from a home, you’ll have to be willing to accept some of its imperfections.

After the appraisal and inspection are complete, now’s the time to purchase homeowner’s insurance (talk with your insurance agent about the best option) and do a final walkthrough (to make sure inspection repairs are complete). A lot of paperwork will also be shuffled around during closing and you’ll be signing a lot of documents, but don’t worry – your real estate agent will go over each form before you sign it. When the paperwork is done and the deal is closed, turn on the utilities and move in.

Additional things to consider

There’s a lot to think about when buying your first home. For a smoother and less stressful experience, remember to:

Check zoning laws. Don’t buy a house just for the view. If you don’t own the land surrounding your house, a builder could purchase the land to build businesses, subdivisions, etc. if the property is in a commercial zone. Have your real estate agent check the zoning in the area before you commit to a home.

Choose the right mortgage for your budget. There are a lot of mortgage options to choose from. Talk with your lender about what type of loan works best for you.

Pay extra on your monthly mortgage. If possible, pay extra each month. This money goes toward the principal on your loan, which means you’ll end up paying less in interest over time.

Bundle your insurance costs. Getting insurance (home, auto, business, etc.) from the same insurance company may help you save money. Ask your agent about different options.

Have a good down payment. The amount you need for a down payment depends on the type of loan you qualify for. For most conventional loans, it’s recommended that you make a 20 percent down payment, so you don’t have to pay Private Mortgage Insurance (PMI). Again, it’s best to discuss your options with a lender who’s familiar with your financial situation.